What Are Tax-free Bonds?

Buying tax-free bonds is a method of tax planning.

These are a low-risk investment option, especially for those falling under the higher tax slab.

This is because interest earned on tax-free bonds are exempted from income tax.

But, if you sell tax free-bonds, this income will attract capital gains tax.

Let’s look at some common queries about tax-free bonds.

They are given by municipalities at a fixed rate of interest. And they are listed on the National Stock Exchange and Bombay Stock Exchange.

Anyone who is aged above 18 years and has a demat account.

First, open a demat account.
Then submit PAN and KYC.
Finally, apply online through the demat account when the government issues the bonds.

9% to 11%.

Up to ₹ 5 lakh

10 to 20 years

It is not easy to liquidate tax-free bonds. So, in case of emergency need of money, tax-free bonds may not be useful.

Tax-saving investments

Click on the below investment options to read all about them!

Here are some key takeaways from this section that you should remember.

Tax planning is an honest and legal way of reducing tax liability.
Tax evasion is an illegal and criminal offense. If caught, the person will be jailed.
Tax-free bonds are a low-risk investment option that can be used to reduce tax liability.
The interest earned on tax-free bonds is exempt from income tax.
PPF, NSC, Atal Pension Yojana, New Pension Scheme, and Sukanya Samridhi Yojana are some tax-saving investment options.

Here is a quick task to help improve your understanding.

How well does this statement describe you or your situation?

Tick one of the five boxes.

This statement describes me	Completely	Very well	Somewhat	Very little	Not at all
It is okay to declare only some income instead of full income while filing IT Returns.
It is alright to do business with or buy something from a person who does not declare his income to the IT department.
I will claim tax deductions and exemptions on my income.
Those who repeatedly evade tax should be jailed.
We should report tax evaders to the IT department.

Continue reading to know some important sections of the Income Tax Act